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Ford Races Ahead Of Detroit's Big Three

Jun06,2018

With investors always so fixated on short-term results and today’s corporations criticized for short-term decision-making, it comes as some surprise that the media uses the long-term potential for electric cars, ride sharing and self-driving cars as a reason why an automaker’s share price should dip or rise.

According to Forbes, in 2016 total U.S. sales of electric vehicles (EVs) were only 159,139 vehicles. True, it’s a big jump on 2015, but still amounts to less than 1 percent of the U.S. automotive market.

Self-driving cars are not even out there yet and ride sharing is in its infancy, even as a well-developed concept. Not that these trends will not be major disrupters in the next decade, but in the short term we are not talking game-changers, yet.

In fact, the Detroit three are doing pretty well at the moment, despite a slowdown in car sales this year (both in the U.S. and some other parts of the world).

The U.K. has downgraded auto sales three times this year, from 2.7 million vehicles last year to 2.59 million this year. Next year has been downgraded yet again to an expected 2.51 million.

Ford has just announced its results and surprised both the wider market and analysts who had been expecting modest growth. Instead, Ford saw earnings per share at $0.43, well above expectations of $0.32, according to the Financial Times.

Apparently, Ford’s lineup of trucks has powered results this year, not EVs or hybrids, even though the firm’s Fusion Energi is one of only five EV models to have sold more than 10,000 vehicles last year.

GM has not fared as well, declaring a hefty $2.98 billion loss in the third quarter, much of which was an impairment from the sale of its European Opel brand. But yet again, GM’s adjusted earnings per share of $1.32 were well ahead of market expectations of $1.13 and supports a near 30 percent rise in the share price this year.

The auto industry is certainly going through challenging times. In some quarters there is an expectation the established old order will be swept away by new challengers, such as Tesla. The fact is, however, the incumbents have a huge depth of experience in supply chains, manufacturing, marketing and distribution.

After an arguably slow start, they are moving swiftly to both develop new technologies in-house and to buy smaller firms in areas they recognize they lack the skills or expertise.

Detroit is not alone in this.

Automakers in Germany, France, the U.K. and Japan also face a technological revolution and are pouring billions into their respective visions of how that future will unfold. Japan is betting big on fuel cells, Europe is going more hybrid, and the U.S. is going both hybrid and EV.

There will be casualties, but profits now are paying for the investments made. Don’t count out Detroit just yet.